Own These ’Steady Eddies’ in the Next Market Crash

Five things. You need just five things to be happy.

Or, better said, five things will give you the best shot at happiness.

Food, shelter, health, companionship… and a good answer to the following question: “When the going gets tough, what will I have on my side?

A sea of different market forces are pushing stock prices around. When the year started, the push went in one direction – way up. Lately, it’s been more to the downside.

I don’t see a recession or stock market crash around the corner just yet… But signs of trouble are starting to form in the distance. So today, we’ll look at which assets you should rely on when things in the market get really scary.

The good news is, two simple steps can get you started down the right path. Let me explain…

After a fantastic start to the year, renewed tensions between the U.S. and China have ratcheted up fears in the market once again.

This could all be short-term noise. Even so, the fact remains that we’re closer to the end of this bull market than we’ve ever been. And when it finally comes, the nearly 5% decline we saw in the Dow Jones over the past two weeks will look like nothing in comparison.

So what should you do when the crash comes? Should you sell everything and go to cash?

Well, no. For one thing, when the market finally melts down, cash won’t fully protect you. Cash is going to go down in value in the next recession – probably a lot.

That’s because the biggest problem for the U.S. and most other major economies around the world is that they have way too much debt. And the easiest and most likely way to resolve this problem is to devalue their currencies by printing money. (In a future world where the dollar’s value gets cut in half, everything will cost twice as much… except the money you borrowed in the past.)

It turns out that cash – in a low-growth, high-inflation world – is not king.

That’s why if you want to prepare for a recession and market crash, you’ll need to own more non-cash assets… not fewer.

The first thing to do is to invest in some precious metals, commodities, and hard assets. Those will hold their value better than cash will in a recession and stock market crash.

On a nominal basis – or in dollar terms – these assets should do well. But remember, your dollars will be worth less.

What you need most are assets that should appreciate over time on a real basis – meaning they’re worth more after inflation. These are assets with intrinsic values that go up year after year… And they’re the assets you want to rely on when things get really scary.

Over the long haul, one of the best asset classes for that is stocks.

Countless statistics show how well stocks have performed over long periods of time. I’ll spare you most of them. But consider one data point: Since the S&P 500 Index launched more than 60 years ago, there is not a single period of 16 years or longer that stocks didn’t rise.

And on average, stock gains beat inflation by 6.7% per year. This means that even if you picked the absolute worst year to buy stocks, you still came out ahead if your investment horizon was long enough.

OK, but which stocks should you buy?

To answer that – to figure out what to rely on when things get really scary – you need to ask yourself both of the following questions:

  • Do I expect this company to still be doing well in 20 years?
  • If I woke up tomorrow and saw the stock was down more than 10%, would I want to buy more of it?

If you can answer “yes” to both of these questions, you’re investing in a durable business that you have confidence in. And that combination of staying power and understanding will enable you to make better investment decisions when the going gets tough.

This bull still has some run left in it. You want to stay invested to take advantage of the upside.

And in the meantime, you also want to own these “Steady Eddies” that will have your back no matter what. They’ll enable you to stand strong and stay invested in other parts of your portfolio… And they’re a great way to supplement some of your more growth-oriented “Melt Up” positions.

In short, this is the perfect time to review your portfolio. Get your Steady Eddies on your side. They will protect against unforeseen dangers… and put your portfolio on solid ground when the market gets choppy.

Good investing,

Austin Root

Source: Daily Wealth